Physician Consolidation Leads to Higher Healthcare Costs

October 3, 2019

As more healthcare organizations and private equity firms purchase or invest in physician groups, costs for consumers rise.

Over the past few years, the healthcare industry has been in the midst of a merger mania, with large hospital systems uniting with fellow systems as well as acquiring competitors at an unprecedented rate. Independent physician groups have not been immune to this wave of consolidation-not only have health systems made a point of taking up independent practices but, now, Wall Street’s private equity groups also see physician acquisition as a prime investment.

But while analysts suggested such provider consolidation would help to improve the integration of care, decrease duplicate tests, and help reduce the cost of care – to the tune of 15% to 30%, by some estimates-new research from Rice University published in the Journal of General Internal Medicine suggests such consolidation is actually making healthcare more expensive.

Vivian Ho, PhD, an economist as well as the director of the Center for Health and Biosciences at Rice University’s Baker Institute for Public Policy, says she and her collaborators at Blue Cross Blue Shield of Texas, one of the largest health insurance providers in the state, became interested in the effects of physician consolidation on healthcare costs after doing a study that showed that costs were 10 times higher at freestanding emergency departments over urgent care centers, despite the fact they offer many of the same services.

“There’s been increasing consolidation going on in the healthcare markets, with lots of hospital mergers as well as many physician practices getting acquired by and more physicians starting to be employed by hospitals instead of working on their own,” she explains.  “We were curious about how these consolidations affected spending and quality of care.”

After analyzing claims data from a Blue Cross Blue Shield Texas preferred provider organization (PPO) for patients between 19 and 64 years of age across several metropolitan areas across the state, the researchers discovered that the quality of care did not differ between independent practices and those billing through a hospital. But when it came to costs, spend was 5.8 percentage points higher when patients were treated by a doctor in a hospital-owned practice. They found those cost differences were primarily due to imaging services, durable medical equipment, and outpatient care-and could be explained by greater use of those services as opposed to hospital-owned physicians simply having higher prices.

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While some other smaller studies had hinted that hospital-owned physician practices might come with higher costs than independent practices, Ho says she was actually surprised by the results.

“I thought if there was a more direct relationship between physicians and hospitals that would naturally lead to more coordinated care, which would reduce costs, particularly with diagnostic tests,” she says. “But as we looked at the data, the greater costs made more sense. Hospitals can make revenue from diagnostic tests and may encourage their physicians to do more of them. And there is a reason why they say to get your crutches or that knee brace from Walmart instead of at the hospital: hospitals charge you a heck of a lot more for those pieces of durable medical equipment.”

As the healthcare industry looks to contain costs for both healthcare organizations and patients, these findings are of concern. Ho says, while there is no cut and dry solution to the issue, greater transparency is needed to deal with the problem. She also adds that moving toward well-designed accountable care organizations (ACOs) could also help curb costs.

“If you have shared cost savings, there is no incentive for hospitals to be engaging in this type of behavior and patients are much less likely to get one of these unexpected, gigantic bills from their physician,” she says. “In terms of policy, anything that can help to strengthen antitrust in duration for healthcare should help, as well as legislation that says you can’t require that an insurer cover every single hospital that a hospital system owns as in-network and then charge higher prices. Finally, I think we should also think carefully about easing up on regulatory requirements for smaller, independent physician groups. These are some of the things that might make a real difference.”

Kayt Sukel is a science and health writer based outside Houston.